SINGAPORE, Aug 29 (Reuters) - Singapore kicked off the application process for up to five new digital bank licences and issued detailed guidelines for potential contenders, which could include Southeast Asian ride-hailing firm Grab and Singapore Telecommunications.

Asia's non-banking firms have been keen to challenge traditional banks by leveraging their technology and user databases to offer banking services to retail customers and small businesses.

"The new digital bank licences, which will be extended to non-bank players, will ensure that Singapore's banking sector continues to be resilient, competitive and vibrant," the Monetary Authority of Singapore (MAS) said in a statement on Thursday.

The entry of new players could lead to the biggest shake-up in two decades in a market dominated by local banks DBS Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd.

The MAS, which had flagged the opening up of the sector in June, said that it would accept applications until the year-end.

"I expect many bidders to come together in consortiums because the slots are limited. There's a strong emphasis on tech companies and Singapore-based firms," said Varun Mittal, who heads the emerging markets fintech business at EY.

Applicants need to submit a feasible exit plan, and other eligibility criteria includes having a track record in the technology or e-commerce sector.

Grab, which counts SoftBank Group Corp and Uber among its investors, and Singtel have expressed interest for the licences. Sources said global and local fintech firms and overseas banks are also expected to bid for the licences, mainly through joint ventures.

The MAS plans to issue licences for up to two digital full banks and up to three digital wholesale banks.

It said digital full bank applicants must be anchored in Singapore, controlled by Singaporeans and headquartered in the city-state, while wholesale banks can be controlled by Singaporeans or foreign entities.

"Digital full banks will be allowed to take deposits from and provide a wide range of financial services to retail and non-retail customer segments, while digital wholesale banks will be permitted to serve small and medium enterprises and other non-retail segments," the MAS said.

The MAS expects a digital full bank to be fully functioning and have S$1.5 billion ($1.08 billion) in capital within three to five years from starting the business.

It expects to grant the licences in mid-2020 and digital banks are expected to start business within 12 months of receiving in-principle approvals from the central bank. ($1 = 1.3868 Singapore dollars) (Reporting by Anshuman Daga; Editing by Muralikumar Anantharaman)